Economists: Transition to service-based economy dragged down by housing woes

Feb. 5, 2014

Hudson Lumpkin. 3, of Delmar dribbles the ball during a FUNdamentals class at the Crown Sports Center in Fruitland.

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011814-CrownSports-JDG--Joey Gardner Photo--Diversified Strikers' Thomas Pheobus drives with the ball against Blackwater Athletic Club during their U-12 game Saturday at the Crown Sports Center in Fruitland. / Joey Gardner

Susie Hearnes

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FRUITLAND — To understand the trajectory of Delmarva’s economy, step into the four acres of enclosed space on the outskirts of this city, a mammoth of a building that resembles two airplane hangars fused together.

For 35 years, as the Crown Cork & Seal tin can plant, the complex was a monument to heavy industry. It closed in 2001, adding further momentum to an exodus of manufacturing jobs from the area.

Today, throbbing dance beats have replaced the din of machinery in what is now a roller rink. Elsewhere — there’s no dearth of indoor space, after all — artificial turf fields provide a weather-proof setting for lacrosse, soccer, field hockey, flag football and other activities.

Since its grand opening in 2005, the Crown Family Entertainment Center has borne boisterous witness to an evolution in the local economy from manufacturing to the service industry.

As of last June, Wicomico County shed 617 manufacturing jobs compared with the same month in 2005; but those losses were more than offset by leisure and hospitality businesses, which added 665 employees.

Delmarva’s economy is much larger than two sectors, of course. And the new economy is struggling to add high-paying jobs amid a rebound from the Great Recession that has been even slower than the staggering national economy, according to employment data and interviews with the region’s top economists.

“The national economy is expected to improve quicker and better than us,” said Memo Diriker, founder of Salisbury University’s economic think tank the Business, Economic and Community Outreach Network.

Such lags are typical on the rural peninsula following downturns, Diriker said. But the next thing he said isn’t: “Because we fell a lot harder than usual, it’s going to take a lot longer to recover.”

Encouraging signs have included a significant increase in real estate transactions, efforts to develop a research park near the NASA Wallops Flight Facility, Jubilant Cadista’s addition of 200 pharmaceutical industry jobs and at least four major apartment complexes rising in Salisbury.

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But it seems like for every up, there has been a down: the impending closure of the J.C. Penney store in Salisbury, the shrinking of Peninsula Regional Medical Center, stalled wage growth and stagnation in home prices.

One sector drives the rest, analysts said.

“We’re going to have some wins. It’s great for our community and for our region,” said Dave Ryan, executive director of Salisbury-Wicomico Economic Development. “But for our broader economy to come back, we need housing.”

Construction set to rebound?

In 2011, Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond, issued a stark real estate forecast at an annual meeting hosted by Ryan’s organization. Stress in both the housing and lending markets could preclude any meaningful new construction until 2015, he warned.

“I remember thinking, ‘This guy’s crazy. It can’t be that far off,’” Ryan recalled the other day. “But here we are, 2014. He may not be that far off.”

The number of homes on the market has been shrinking — a must if prices are to rebound and new construction is to roar back to life. In November, the Maryland Association of Realtors reported 610 homes on the market in Wicomico, a 12 percent reduction from a year earlier.

Meanwhile, the months of inventory on the market — how long it would take to clear the decks based on the current number of listings and the pace of sales — had plummeted from nearly 15 months to 8.5 months.

Other signs of a return to normal are less sanguine. Maryland saw foreclosure actions jump 117 percent in 2013, outpacing its closest competitor, New Jersey, by more than 70 percentage points, according to RealtyTrac. And Wicomico was in the white-hot center of the foreclosure fire, with one out of 411 homes in foreclosure compared with one out of 487 statewide.

That blaze wasn’t ignited in the Free State by some new market catastrophe, analysts say. Rather, it represents repossessions that would have happened earlier if not for newly enacted state laws aimed at giving homeowners a chance to find alternatives to foreclosure.

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The Lower Shore is falling harder than other parts of the state because it had farther to fall, said Stephen Greenwood, president of Coastal Title & Escrow in Salisbury.

“I don’t think our markets have recovered to the extent of some of the others because our growth was disproportionate to what our income levels here are,” he said. “How many people can buy a $500,000 townhouse in GlenRiddle and how many are sitting there?”

“It was great. We were all rolling — the real estate companies, the title companies, the loan officers. I hate to say it, but those times are gone,” he said.

A census conducted every three months by the Maryland Department of Labor, Licensing and Regulation shows where those dominoes tumbled hardest in Wicomico.

Since around the height of the boom in 2005, two out of five construction jobs have disappeared, the largest drop in any of the 10 sectors monitored at the county level.

Meanwhile, one out of five in financial activities and one out of 10 in professional and business services have vanished.

'Slightly improved'

Overall, Wicomico, home to the Delmarva commercial hub of Salisbury, has 1,174 fewer jobs than it did in June 2005, according to the state data. That 2.5 percent dip came as jobs statewide expanded, contracted and slowly began to expand again to land at an ultimate increase of 1.7 percent.

Diriker’s think tank released a report in January pronouncing the Salisbury area's business activity in the last three months of 2013 as "slightly improved." It projected "moderate growth" for this year's first three months, meaning more modest steps forward.

Sectors expected to be on the upswing during the early part of this year include home prices, large equipment purchases, existing home sales, retail, auto sales and tourism. Flat activity is projected for hiring, manufacturing, lending and construction, among others.

But for the first time in seven years of reporting, no sector was forecast to decline, Diriker said.

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The transition from a “brawn to brain economy,” as he called it, has been anything but smooth. After pumping nearly 2,700 jobs into Wicomico’s economy from 2003 to 2005, the service sector added just 98 jobs over the next eight years.

“The idea is if we keep producing too many service jobs, there won’t be anyone left to service,” said Kate Brown, head of the business management and accounting department at the University of Maryland Eastern Shore.

The speaker bios from a recent economic panel offered a glimpse of the direction that the region’s movers and shakers would like to steer the economy.

The Salisbury Area Chamber of Commerce discussion was titled “The Sky’s the Limit!” The three participants were the director of the Virginia Space Flight Academy, the head of the business coalition pushing Maryland offshore wind and the president of companies that manufacture power transformers and welding equipment.

“How many manufacturers do we have in the room?” asked Katarina Ennerfelt, president and CEO of Toroid Corp. and Arcon Welding Equipment. “I know we must have at least one.”

After a few uncomfortable moments, one hand among scores went up into the air.

“Historically, we had a really strong manufacturing background in this area. Lately there is a lot of small players. But what happened when the big companies disappeared is we lost our voice,” said Ennerfelt, a native of Sweden who spent 10 years in the upper levels of IKEA’s management.

“That’s why I’m sitting here right now — to let everyone know that manufacturing is alive and kicking in Wicomico County and it’s well above state and federal levels,” she said.

Back in Fruitland, the three dozen or so employees at the new Crown are a far cry from the 120 at the old Crown. They make no finished products. But they have steady work, if the invariably booked-up birthday party calendar and the 15,000 visits per weekend are any indication.

Over the years, the business has steadily expanded to include the roller rink, a daycare program and laser tag room. Little remains of the old manufacturing business but the shell of its building and the “Crown” name.

“It was all because there’s a need for the kids and adults to go as a community,” said Susie Hearne, manager of the entertainment side of the business and daughter of the business owner.“We just try to give the best service possible and the best facility for a good price.”

Even when the economy is in the doldrums, she has found in her experience over the past eight years, “people will always put their children ahead of themselves.”